Andrea-Blocker

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UNIVERSIDADE FEDERAL DO RIO DE JANEIRO 
 
INSTITUTO COPPEAD DE ADMINISTRAÇÃO 
 
 
 
 
ANDREA ROCHA BLOCKER 
 
 
 
 
 
 
 
 
 
 
READINESS TO SERVITIZE 
Analysis of a pharmaceutical company 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rio de Janeiro 
2017 
 
 
 
ANDREA ROCHA BLOCKER 
 
 
 
 
 
 
 
 
 
 
 
READINESS TO SERVITIZE 
Analysis of a pharmaceutical company 
 
 
 
 
 
 
Master’s dissertation presented to Instituto Coppead de 
Administração, Universidade Federal do Rio de Janeiro, 
as part of the mandatory requirements in order to obtain 
the degree of Master in Business Administration 
(M.Sc.). 
 
SUPERVISOR: Eduardo Raupp de Vargas 
 
 
 
 
 
 
 
 
 
 
Rio de Janeiro 
2017 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ANDREA ROCHA BLOCKER 
 
 
 
 
 
 
 
READINESS TO SERVITIZE 
 
Analysis of a pharmaceutical company 
 
 
 
 
 
 
Master’s dissertation presented to Instituto 
Coppead de Administração, Universidade 
Federal do Rio de Janeiro, as part of the 
mandatory requirements in order to obtain 
the degree of Master in Business 
Administration (M.Sc.). 
 
 
 
 
Approved by: 
 
 
 
 
____________________________________________ 
(Eduardo Raupp de Vargas, PhD.) 
(COPPEAD -UFRJ) 
 
 
 
 (COPPEAD - UFRJ) 
 
 
 
 (UFES) 
 
 
 
 
 
 
 
 
ACKNOWLEDGEMENT 
First, I would like to dedicate this work to my parents, who always encouraged 
me with my studies; I could not have done it without them. Second, special thanks to 
my friends, who understood the long hours of study and gave the necessary 
psychological support I needed for this adventure. Third, I would like to thank my 
COPPEAD professors for all the teaching and knoweldge acquired during these 02 
(two) years of intense hard work. Special thanks to Eduardo Raupp, who made me 
fall in love with the Service Innovation / Servitization discipline. Finally, I would like to 
thank my boyfriend, André, who stood by myside, no matter what, and never gave up 
on encouraging me, even in the worst days. Thanks for being “a voice that says I´ll 
be here; and you´ll be alright.” 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ABSTRACT 
BLOCKER, Andrea. Readiness to servitize – analysis of a pharmaceutical 
company. 2017. 139p. Thesis (Master in Business Administration) - Instituto 
COPPEAD de Administração, Universidade Federal do Rio de Janeiro, Rio de 
Janeiro, 2017. 
Manufacturing companies have, in the past years, faced a more globalized 
environment, an intense increase in the competition and reducing income. Selling 
only products is not enough anymore, and companies need to do more. Therefore, a 
creative way out is the inclusion of services into their offerings. This phenomenon is 
known as ‘servitization’. The benefits that arise from this strategy are immense and 
bring positive results to those that are able to incorporate a service culture into their 
manufacturing processes. Although it may sound relatively easy to do, companies 
face many challenges when transitioning from products to services. The service 
paradox, a perverse and probable outcome of the process, shows that most 
companies do not achieve the success they initially aimed for. For that reason, it is 
important to understand what are the key factors that manufacturing companies need 
to have, in order to engage in a successful servitization process. As a result, 04 (four) 
critical success factors have been identified in the literature – Relationship Marketing, 
Human Resources Management, Information Management and Organizational 
Structure. For this specific study, company ‘ABC’ – Brazil/Rio de Janeiro, in the 
pharmaceutical business, will be analyzed. With the help of a scale of servitization 
and a questionnaire, the company can determine its readiness to servitize, according 
to the employee´s perceptions. Also, it will observe where the critical success factors 
are positioned, in the scale of servitization, and which are the ones that need most 
attention from the decision makers (managers and directors). 
 
Keywords: servitization, service paradox, service continuum, critical success factors 
for customer-oriented business, readiness to servitize, scale of servitization. 
 
 
 
 
 
 
 
RESUMO 
BLOCKER, Andrea. Readiness to servitize – analysis of a pharmaceutical 
company. 2017. 139p. Thesis (Master in Business Administration) - Instituto 
COPPEAD de Administração, Universidade Federal do Rio de Janeiro, Rio de 
Janeiro, 2017. 
Empresas manufatureiras têm, ao longo dos anos, enfrentado um ambiente 
cada vez mais globalizado, um intenso aumento na concorrência e faturamento 
reduzido. Vender apenas produtos não é mais suficiente, e empresas precisam 
fazer mais. Por esta razão, uma saída criativa foi a inclusão de serviços em suas 
ofertas. Este fenômeno é conhecido como ‘servitização’. Os benefícios que surgem 
a partir desta estratégia são imensos e trazem resultados positivos para aquelas que 
conseguem incorporar uma cultura de serviços aos processos manufatureiros. 
Apesar de soar relativamente fácil, empresas enfrentam diversos desafios na 
transição de produtos para serviços.O paradoxo do serviço, uma forma perversa e 
provável deste processo, mostra que grande parte das empresas não alcançam o 
sucesso inicialmente desejado. Por essa razão, é importante entender são os 
fatores-chave que as empresas necessitam ter, a fim de se engajar em uma 
servitização de sucesso. Como resultado, 04 (quatro) fatores críticos de sucesso 
foram identificados através da revisão de literatura – marketing de relacionamento, 
gestão de recursos humanos, gestão da informação e estrutura organizacional. Para 
este estudo, a empresa ‘ABC’ – Brasil/Rio de Janeiro, do ramo farmacêutico, foi 
analisada. Com a ajuda de uma escala de servitização e um questionário , a 
empresa ‘ABC’ poderá determinar sua prontidão para servitizar, de acordo com as 
percepções dos funcionários. Além do mais, irá observar onde estão posicionados 
os fatores críticos de sucesso na escala de servitização, e quais são aqueles que 
demandam maior atenção dos tomadores de decisão (gerentes e diretores). 
 
Palavras-chave: servitização, paradoxo do serviço, service continuum, fatores 
críticos de sucesso para negócios orientados ao consumidor, prontidão para 
servitização, escala de servitização. 
 
 
 
 
LIST OF ILUSTRATIONS 
Figure 01 Articles per Year…………………………………………....................... 18 
Figure 02 Transition from product manufacturer to service provider….............. 28 
Figure 03 Service Continuum………………………………………....….............. 32 
Figure 04 Basic Business Model for Servitized Companies....…….….............. 33 
Figure 05 Product-service system………………………….................................. 34 
Figure 06 Span of service oriented development methods................................ 35 
Figure 07 Critical Success Factors…………………………................................. 53 
Figure 08 Pharmaceutical Sales Breakdown of the World Pharmaceutical 
Markets..........................………………………................................. 54 
Figure 09 Projected top 10 pharmaceutical companies worldwide by revenue 
in 2017..............................………………………................................. 56 
Figure 10 Projected top 10 pharmaceutical companies worldwide by revenue 
in 2017............................................................................................... 57 
Figure 11 Ranking of Industrial Sector by overall sector R&D intensity............. 58 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LIST OF TABLES 
Table 01 Literature Review analysis................................................................. 18 
Table 02 Readiness to servitize – Questionnaire Final..................................... 78 
Table 03 Example of Questionnaire Response.................................................81 
Table 04 Area x Position................................................................................... 85 
Table 05 Service Programs – according to employees..................................... 86 
Table 06 Relationship Marketing – General Analysis.................................. 88 
Table 07 Human Resources Management – General Analysis........................ 89 
Table 08 Information Management – General Analysis.................................... 91 
Table 09 Organizational Structure – General Analysis.................................... 92 
Table 10 General Analysis............................................................................... 94 
Table 11 Marketing Analysis............................................................................ 96 
Table 12 Commercial Excellence Analysis...................................................... 97 
Table 13 Others Analysis................................................................................. 98 
Table 14 SAC Analysis.................................................................................... 99 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LIST OF CHARTS 
 
Chart 01 Definition of Servitization.................................................................... 20 
Chart 02 Relationship Marketing............…………………………………............ 41 
Chart 03 Human Resources Management....................................................... 44 
Chart 04 Information Management................................................................... 47 
Chart 05 Organizational Structure.................................................................... 50 
Chart 06 Critical success factors for the servitization process.......................... 51 
Chart 07 Likert Scale........................................................................................ 67 
Chart 08 Readiness to Servitize Scale............................................................. 67 
Chart 09 Readiness to Servitize Scale with Critical Success Factors.............. 68 
Chart 10 Example of Readiness to Servitize Scale.......................................... 69 
Chart 11 Service Orientation – Questionnaire 01............................................. 71 
Chart 12 Relationship Marketing – Questionnaire 01....................................... 72 
Chart 13 Human Resources Management – Questionnaire 01........................ 73 
Chart 14 Information Management – Questionnaire 01.................................... 74 
Chart 15 Organizational Structure – Questionnaire 01..................................... 75 
Chart 16 Service Orientation – Questionnaire 02............................................. 76 
Chart 17 Relationship Marketing – Questionnaire 02....................................... 76 
Chart 18 Human Resources Management – Questionnaire 02........................ 76 
Chart 19 Information Management – Questionnaire 02.................................... 76 
Chart 20 Organizational Structure – Questionnaire 02..................................... 76 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LIST OF ABREVIATIONS 
 
CAPES 
IF 
GDP 
Comissão de Aperfeiçoamento de Pessoal do Nível Superior 
Impact Factor 
Gross Domestic Product 
OECD Organization of Economic Co-operation and Development 
ICT Information and Communication Technology 
IBM 
IT 
R&D 
SUS 
RS 
International Business Machines 
Information Technology 
Research & Development 
Sistema Único de Saúde 
Readiness to Servitize 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Content 
1 INTRODUCTION ........................................................................................................ 12 
1.1 STUDY RELEVANCE ................................................................................................ 14 
1.2 STUDY DELIMITATIONS ........................................................................................... 15 
1.3 ORGANIZATION OF THE STUDY .............................................................................. 16 
2 LITERATURE REVIEW ............................................................................................ 17 
2.1 THE DEFINITION OF SERVITIZATION ....................................................................... 19 
2.2 THE DRIVERS FOR SERVITIZATION ........................................................................ 22 
2.3 THE SERVICE PARADOX......................................................................................... 27 
2.4 THE SERVICE CONTINUUM ...................................................................................... 30 
2.5 CRITICAL SUCCESS FACTORS FOR SERVITIZATION .............................................. 35 
A) RELATIONSHIP MARKETING (CUSTOMERS & PARTNERS) .................................. 39 
B) HUMAN RESOURCES MANAGEMENT (HUMAN RESOURCES & LEADERSHIP) ..... 42 
C) INFORMATION MANAGEMENT (COMMUNICATION & TECHNOLOGY) .................... 45 
D) ORGANIZATIONAL STRUCTURE (SEPARATED UNIT & ORGANIZATION DESIGN) 48 
3 PHARMACEUTICAL INDUSTRYAND COMPANY ‘ABC’ ................................. 54 
3.1 PHARMACEUTICAL INDUSTRY ................................................................................ 54 
3.2 COMPANY ‘ABC’: .................................................................................................. 60 
4 METHODOLOGY ....................................................................................................... 65 
4.1 RESEARCH DESIGN ................................................................................................ 65 
4.2 CREATION OF SCALE OF SERVITIZATION ............................................................... 67 
4.3 QUESTIONNAIRE DEVELOPMENT ........................................................................... 71 
4.4 QUESTIONNAIRE APPLICATION .............................................................................. 81 
4.5 DELIMITATIONS OF THE METHOD ........................................................................... 83 
5 RESULTS PRESENTATION AND DISCUSSION................................................ 85 
5.1 1ST PART: RESPONDENT´S PROFESSIONAL DATA ANALYSIS ............................. 86 
5.2 2ND PART: EMPLOYEE´S KNOWLEDGE OF SERVICE PROGRAMS AT COMPANY 
‘ABC’ ............................................................................................................................ 88 
5.3 3RD PART: QUESTIONNAIRE ANALYSIS ................................................................ 89 
5.3.1 GENERAL ANALYSIS AT COMPANY ‘ABC’ ......................................................... 89 
5.3.2 ANALYSIS OF SEPARATED AREAS AT COMPANY ‘ABC’ .................................... 97 
A) MARKETING .......................................................................................................... 97 
B) COMMERCIAL EXCELLENCE ................................................................................. 99 
C) OTHERS .............................................................................................................. 100 
D) SAC .................................................................................................................... 101 
6 CONCLUSION .......................................................................................................... 102 
6.1 MANAGERIAL IMPLICATIONS ................................................................................ 106 
6.2 LIMITATIONS AND FUTURE RESEARCH ................................................................. 107 
REFERENCES ......................................................................................................................... 109 
APPENDIX ................................................................................................................................ 127 
A – QUESTIONNAIRE 01 .......................................................................................127 
B – QUESTIONNAIRE 02 ....................................................................................... 129 
C - PRE TEST ........................................................................................................... 131 
D –PRE TEST CHANGES ...................................................................................... 132 
E – FINAL QUESTIONNAIRE ................................................................................ 133 
F – QUESTIONNAIRE FOR COMPANY ‘ABC’ .................................................. 134 
 
 
 
 
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1 INTRODUCTION 
Servitization is, for the past 10 (ten) years, one of the major themes of study for 
manufacturers (Elliot, 2014). With the increase in the competition, in the 
globalization and in the need for constant innovation, companies have found 
themselves urging for new offerings for their customers (Gebauer et al, 2016). 
Therefore, including services has shown to be a well-succeeded solution, as a way 
of satisfying and conquering both current and new customers. The benefits are 
immense, such as increased competitive advantage, stronger customer relationship, 
and visible financial growth (Hong et al, 2015). However, some caution needs to be 
taken, in order to be successful. If not well planned, several difficulties may arise, 
especially because the corporate culture needs to be flexible enough to embrace all 
the necessary changes that arise with servitization. The service paradox, for 
example, is a real phenomenon, which happens when companies fail in the 
transition process, and end up with unexpected low share of service revenue 
(Gebauer et al, 2010). To avoid the negative impacts that may occur, and mitigate 
possible risks, several authors mentioned different factors that manufacturers should 
focus on, and that are critical for a company´s success. 
A thorough analysis of these factors has been done, and those that were similar 
to each other were grouped together. That way, 04 (four) critical success factors 
were identified in the literature – Relationship Marketing (Customers and Partners), 
Human Resources Management (Human Resources and Leadership), Information 
Management (Communication and Technology) and Organizational Structure 
(Separated Unit and Organizational Design). The purpose of these factors is to know 
what is critical for manufacturers in the servitization process, and they will serve as a 
basis for analyzing the readiness to servitize of company ‘ABC’. To do so, it is 
important to get the employee´s perceptions. The employees have a direct view of 
the company, and may bring surprising input to the decision makers (managers and 
directors). With this, they can better understand how their own employees see 
services within the company, and make improvements, based on what the 
employees have stated in the survey. 
After the identification of the critical success factors, and to get the employee´s 
input on the readiness to servitize, a questionnaire was created. The questionnaire, 
which encompasses statements for each of the critical success factors, uses a 
 
 
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scale, which is based on the Likert scale, ranging from ‘Strongly Disagree’ to 
‘Strongly Agree’, and on the service continuum, ranging from ‘Pure Products’ to 
‘Pure Services. 
With the input of employees from company ‘ABC’ to the questionnaire, the 
decision makers (managers and directors) can observe where, in the scale, each 
one of the critical success factors is positioned, and therefore, analyze how ready 
company ‘ABC’ is to servitize. On the one hand, the closer to ‘Pure 
Services’/Strongly Agree’, the readier the company is to servitize; on the other hand, 
the closer to ‘Pure Products’/’Strongly Disagree’, the less ready the company is to 
servitize. Furthermore, the company can see which factors need most attention from 
the decision makers (managers and directors), and these will orient company ‘ABC’ 
in improving their current service offerings and/or creating new services to both 
employees and customers. 
For this specific study, company ‘ABC’ - name will be kept anonymous for privacy 
reasons - was chosen. Company ‘ABC’ is a science-led global healthcare company, 
focused on research, development and manufacturing of innovative pharmaceutical 
medicines, vaccines and consumer health products. Established in 2000 by a 
merger of 02 multinationals, company ‘ABC’ is considered one of the largest 
pharmaceutical companies in the world, with around 100.000 employees in more 
than 150 countries. In Brazil, where the company is established for over 100 years, it 
began, in 2013, to develop service programs to their customers, with the aim to 
approach and meet patient´s needs. The servitization survey has been done with 
employees from ‘ABC’ - Brazil/Rio de Janeiro, from different sectors, to understand 
how ready company ‘ABC’ is to servitize. 
The pharmaceutical industry is extremely relevant and with exponential growth, 
especially in growing markets, like Brazil, with total revenues reaching over US$ 01 
trillion, in 2014, worldwide, and market opportunities showing new investment 
possibilities. The challenges faced by pharmaceutical companies are huge, 
especially with the Research and Development (R&D) costs and the long time-to-
market of new products. The solution to servitize is, therefore, a creative way out for 
such companies that need to innovate in such a dynamic business. 
 
 
 
 
 
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With that said, the question that arises with this study is: 
Q: How ready to servitize is company ‘ABC’, according to the employee´s 
perceptions? 
 
Therefore, the main objective of the study is to analyze the readiness to servitize 
of company ‘ABC’, considering the employee´s input. 
To get the results, 02 (two) secondary objectives will: 
1. Identify the position, in the scale of servitization, of the critical success factors 
at company ‘ABC’, and 
2. Identify which are the critical success factors that need most attention from 
the decision makers (managers and directors) at company ‘ABC’. 
 
1.1 Study Relevance 
The existing literature on the servitization process is, indeed, extensive. Several 
authors have already explored the issue and exposed pros and cons regarding the 
subject. However, there is a gap in the study of servitization, because there is no 
defined/tangible framework that helps manufacturers in the transformation path from 
products to services. Most of them highlight the benefits, the challenges and the 
difficulties encountered by manufacturing companies, but there is no structured 
model that can be used as a practical guide for companies, considering the articles 
used for this specific study. For that reason, both the scale of servitization and the 
questionnaire, with employee´s perceptions at company ‘ABC’, may have a positive 
effect for decision makers (managers and directors), since they will be able to 
understand how company ‘ABC’ is performing today, and what is their readiness to 
servitize. Also, it is possible to analyze which critical factors should the company 
‘ABC’ focus on, to have a successful transition from products to services. Because 
company ‘ABC’ already has services implemented, it is possible to check what 
factors it needs to invest, so that the current services are improved, or new ones are 
developed. Important to mention is that the audience of the questionnaire are the 
company´s own employees; that way, the decision makers (managers and directors) 
may have a clearer view of how their employees see services in the company and 
what practical actions can be taken to improve their current offerings and/or create 
new ones. 
 
 
15 
By analyzing company ‘ABC’ – Brazil/Rio de Janeiro, the decision makers 
(managers and directors) can understand how a global manufacturer is dealing with 
current customer demands locally and what shouldbe their focus in the next coming 
months/years, related to the servitization process. 
 
1.2 Study Delimitations 
Every study has its delimitations, and they are important, to be able to create a 
feasible and viable analysis of the issue, in a pre-defined period. There are some 
common delimitations regarding space/location, time and scope. 
First, due to limitations in time and access, the study analyzed a single company 
in a single industry, and in a single region (‘ABC’ / Pharmaceutical / Brazil/Rio de 
Janeiro). Also, the company already has services implemented; that way, the 
servitization process is already in place and may affect one or other result in the 
analysis. 
Second, the study surveyed 50 (fifty) employees at ‘ABC’ during a short period 
(December 2016 and January 2017). Important to mention that the study has been 
done solely with employees; not the directors, C-level, customers and/or partners of 
company ‘ABC’. Due to difficulties in reaching company ‘ABC’ managers, the 
communication flow was hampered, and the total number of respondents was below 
expected. Therefore, the study is exploratory, and aims to provide a basis for future 
researchers, who may be interested in deeply understanding the pharmaceutical 
business, in terms of servitization. 
Third, the questionnaire was developed with the help of 03 (three) managers at 
company ‘ABC’ in Brazil/Rio de Janeiro, who may not have a complete view of the 
whole servitization process and/or a biased position. 
Finally, the study is intended to focus only in the pharmaceutical industry, due to 
its importance in the market, especially in growing economies like Brazil, and its 
constant challenge to engage in a servitization process to survive. In order to study 
new businesses, it is crucial to develop a new questionnaire and understand what is 
key for that specific industry. 
 
 
 
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1.3 Organization of the Study 
The work is divided in 05 (five) chapters. The 1st (first) one is this introduction to 
servitization with the question to be answered; the main and secondary objectives, 
the relevance of the topic, as well as the delimitations and study organization. 
Chapter 02 (two) is an extensive literature review, with work from the experts in 
different fields within servitization. The chapter is divided in sub-topics, which are the 
definition of servitization; the drivers for servitization; service paradox; the service 
continuum, and critical success factors for servitization. 
Chapter 03 (three) explores the pharmaceutical industry, its characteristics in 
Brazil and in the world, and the main trends in the market. Furthermore, it highlights 
company ‘ABC’ and its service programs in Brazil/Rio de Janeiro. 
Chapter 04 (four) refers to the methodology used, with the research design, the 
creation of the scale of servitization, the questionnaire development and application, 
and the limitations of the method. 
Chapter 05 (five) exposes the results of the questionnaire applied at company 
‘ABC’ – Brazil/Rio de Janeiro and the discussion, both general and separated by 
business area. 
Chapter 06 (six) shows the conclusion of the work, with a wrap-up of all that has 
been said before, the managerial implications and, finally, possibilities for future 
research. 
 
 
17 
2 LITERATURE REVIEW 
This chapter is devoted to the literature review regarding the servitization process, 
with special attention to the innovation through services. The research includes 
several articles from diverse authors in different regions - mainly in the United States 
of America and Western Europe - and knowledge fields – operations, services and 
business. 
The existing literature is relatively extensive. Publications data were taken from 
04 (four) different databases - EBSCO, ProQuest, Emerald Insight and Science 
Direct - and the keyword used was “servitization”, concerning both manufacturing 
and services context. The search activity, done from October 2015 to March 2016, 
provided access to a wide variety of journals and other forms of written materials 
such as books and magazines from 1988 to 2016. Starting with 1.049 reading 
papers, some filters had to be employed, to narrow the research material and find 
those that were relevant to the study. 
First, 03 (three) major filters were used: “revised by specialists”; “academic 
periodic”, and “articles”, in all 04 (four) databases. The total number of articles 
dropped to 744 papers. Second, not all articles were available for reading; some of 
them had only the abstract, which prevented from understanding the entire paper. 
For that matter, those were excluded, resulting in 661 articles. Third, many articles 
were duplicated, or even tripled; that means, more than 01 (one) copy of the article 
was included in the total amount. Therefore, by deleting those extra papers, the 
number fell to 520 – almost half the original volume. 
Finally, only publications with classification A1, A2 or B1, according to Comissão 
de Aperfeiçoamento de Pessoal do Nível Superior (CAPES), were included. Due to 
the huge amount of scientific paper and journals that exist nowadays, international 
organizations have created a ranking system, ranging from A1 (the highest) to C (the 
lowest). To give the classification, some rules should be followed, based on 02 (two) 
main criteria: H Index and Impact Factor (IF). The H index refers to the quantity of 
citations that each journal has; and IF refers to the impact that each journal has in the 
scientific community (Research Gate, 2015). 
As said, in this study only articles with classification A1, A2 and B1 were 
considered. The rules, based on CAPES standard in 2013, are the following: 
 
 
18 
 Articles considered A1 should have an H Index higher than 20 (twenty); or 
an IF rate higher than 01 (one); 
 Articles considered A2 should have an H Index between 04 (four) and 20 
(twenty); or an IF rate between 0,2 (two) and 01 (one); and 
 Articles considered B1 should have an H Index between 04 (four) and 0 
(zero); or an IF rate between 0 (zero) and 0,2. 
 
By considering only those papers (A1, A2, B1), the number of articles dropped to 
464. Later, initial reading of the abstracts, keywords and content allowed this pool to 
be reduced to 174 academic articles, which were considered relevant for this study, 
at first. The excluded articles were not related to the scope this study aimed to 
achieve; they referred mostly to innovation, not exactly with focus on servitization 
itself. After a more accurate reading of the papers, 41 of them were excluded, 
because the subject was not exactly the one to be studied. Finally, 133 articles were 
representative of the current body of knowledge associated with the servitization of 
manufacturing. 
Table 01 shows a summary of the total quantity of papers by Database: 
Database
Keyword: 
"Servitization"
(1) Filters: "Revised by 
Specialists", 
"Academic Periodic", 
"Articles"
(2) Complete 
Text not 
Available
(3) 
Repeated 
Articles
(4) 
Publication 
Classification
(5) Subject not 
related to study 
(1st Part)
(6) Subject not 
related to study 
(2nd Part)
ProQuest 524 296 249 242 212 115 83
Emerald 142 132 106 15 11 4 4
EBSCO 122 75 65 44 35 16 16
Science Direct 261 241 241 219 206 39 30
TOTAL 1049 744 661 520 464 174 133 
Table 01 – Literature review analysis 
 
In a nutshell, with the initial number of 1.049, after all the filters and analysis, 
the total number of articles used in the work was 133, that means 12.00% (twelve 
percent) of the initial volume. These served as a basis for the identification of the 
critical success factors, the construction of the scale of servitization and the 
creation of the questionnaire. 
Figure 01 shows the existing articles (Total = 133) per year, which 
demonstrates a regular growth in years 2013, 2014 and 2015. Althoughalready 
existing in 1988, most of the articles were written in the past 04 (four) years. 
Important to notice that 2016 shows a low number of articles (06) because the 
 
 
19 
research was done during the first 03 (three) months of that year (January, 
February and March, 2016). 
 
Figure 01 – Articles per Year 
 
With the identification of the articles to be used (133), the literature review is 
divided into the following items: 
(2.1) The definition of servitization; 
(2.2) The drivers for servitization; 
(2.3) Service Paradox; 
(2.4) The service continuum; 
(2.5) Critical Success Factors for servitization. 
 
2.1 The Definition of Servitization 
Servitization is not a new concept. The origins of the term date back to the 
1960´s, but the pressures in the economy of recent years have given higher attention 
on the subject (Schemmer, 2009; Elliot, 2014). In the literature, the concept has first 
appeared in 1988 in a study by Vandermerwe and Rada, where they concluded that 
servitization would critically affect the way managers think, act and do business in the 
future. In their words, “it will (…) change some of the relationships and competitive 
dynamics in which business operates” (VANDERMERWE and RADA, 1988, p. 315). 
The authors shed light to a trend that started in the late 1980´s and gained more 
strength in the subsequent years. The literature on servitization has spread 
 
 
20 
considerably, since different scholars have deeply explored the concept, its 
characteristics and effect on companies, attracting an increasing amount of attention 
to management, marketing and operations literature (Martin-Peña and Bigdeli, 2016). 
Today, almost 30 years after its insertion, it represents a total shift in the way most 
manufacturers operate. As Vandermerwe and Rada (1988) have predicted, 
servitization has become one of the most important innovations for product-centered 
businesses. 
First, to understand what servitization means, a thorough analysis of the articles 
has been made and different definitions were chosen, in chronological order, as 
shown in Chart 01. 
Author(s) Year Definition of Servitization 
Vandermerwe and 
Rada 
1988 
“The increased offering of fuller market packages or ‘bundles’ of 
customer focused combinations of goods, services, support, self-
service and knowledge in order to add value to core product 
offerings”. 
Baines et al 2009 
“Servitization is the innovation of an organizations capabilities 
and processes to better create mutual value through a shift from 
selling product to selling services”. 
A. R. Tan et al 2010 
“Servitizationis in effect an approach to designing integrated 
products and services with a dual focus on both product lifecycle 
and customer activities considerations”. 
Steunebrik 2012 
“Many organizations that traditionally offer products are currently 
extending their business to value-adding services. In this context, 
‘servitization’ means that organizations try to find an optimal 
combination of products and services to generate income” 
Barnett et al 2013 
“Servitization is the move by firms to gain value from service 
associated with their products, which requires a strategic rather 
than incremental change in the provider firm.” 
Neely 2013 
“Servitization is a transformation journey – it involves firms (often 
manufacturing) developing the capabilities they need to provide 
services and solutions that supplement their traditional product 
offerings” 
Kaczor and 
Kryvinska 
2013 
“Servitization describes the transition from a pure product 
manufacturer to a finally service offering company striving for 
increasing revenues with higher margins. This is conducted 
through offering product service bundles via varying integration 
possibilities” 
Demeter and Szász 2013 
“Servitization denotes the process by which the output of 
manufacturing companies is shifting from delivering pure physical 
products towards offering a bundle of products and services”. 
Paiola et al 2013 
“Servitization is an innovative combination of products and 
services leading to high-value unified responses to customer 
needs”. 
Elliot 2014 
“Servitization means transforming their (manufacturing) 
business model from being a product-dominant to a customer-
centric organization in order to maintain or recover competitive 
advantage” 
http://www.forbes.com/business/
 
 
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Avlonitis et al 2014 
“Servitization is about competing through value propositions that 
integrate services with product offerings” 
Vendrell-Herrero et 
al 
2014 
“Servitization is the move away from selling traditional product to 
selling a wide range of product/service bundle combinations, 
contributing to firm sustainability and profitability and hence the 
competitiveness of nations”. 
Gaspar and Szarz 2014 
“Servitization is a process wherein manufacturing companies 
develop more and better services which are coupled with their 
products to better satisfy customer needs, achieve competitive 
advantages and enhance the performance of the company”. 
Dubruc et al 2014 
“Servitization can be considered as an organizational innovation 
which requires a shift from a manufacturing culture to a service 
culture”. 
Pezzotta et al 2014 
“Servitization is an innovation strategy, shifting the business 
focus from designing and selling physical products to designing 
and selling systems consisting of products, services, supporting 
networks and infrastructures, which are jointly capable of fulfilling 
specific customer demand”. 
Elfving et al 2014 
“Servitization means shifting the business from designing and 
selling physical products only, to selling a system of products and 
services which are jointly capable of fulfilling specific client 
demands”. 
Gesing et al 2014 
“Servitization is an integrated product and service offering that 
delivers values in industrial applications and leads to new, 
customer-adjusted solutions”. 
Leoni 2015 
“Servitization means transforming almost every aspect of the way 
business is conducted: such as strategies, positions in the value 
stream, capabilities, organizational structures, as well as culture 
and mindsets at all organizational workers’ level”. 
Lee et al 2015 
“Servitized goods in this study are defined as goods integrated 
with and inseparable from services that have additional and 
supplementary characteristics such as maintenance, repair, and 
after-sales service for consumer convenience”. 
Stefano et al 2015 
“Servitization is a business strategy, and has major potential to 
generate solutions that meet the needs of not only industry but 
also clients through the delivery of integrated products and 
services”. 
 
Pleplys et al 2015 
“Servitization is about satisfying customer needs by selling the 
function of the product rather than the product itself, which in turn 
can be provided by a combination of products and services”. 
 
Chart 01 – Definition of Servitization 
 
As seen in the existing literature, and as highlighted in Chart 01, the concept has 
manifold definitions. Even though it exists since 1988, it gets clear from Chart 01 that 
the concept has been highly explored in very recent years, mainly from 2013 to 2016. 
By analyzing the phrases exposed, those that have higher impact for the present 
study are the ones from Neely (2013), Elliot (2014) and Leoni (2015). All of them 
focus on the transformational path - “transformation journey”, “transforming their 
 
 
22 
business model”, “transforming almost every aspect” - that companies undergo when 
adopting a servitization strategy. Briefly, servitization is a means of adding value to 
the customer by combining both products and services; rather than just selling a 
physical good, a manufacturer innovates with the addition of service component(s), 
whether being a simple offering or a more complete service solution. Although 
apparently easy to define, the concept is rather complex(Lightfoot et al, 2013). 
With that said, it is interesting to see why the servitization process has started, 
and why the movement has conquered so many manufacturers throughout the last 
years, in a global scale. 
 
2.2 The Drivers for Servitization 
In most developed countries, the service sector has dominated the economy and 
has become key to competitiveness in the late years. Services generate 80.00% 
(eighty percent) of the Gross Domestic Product (GDP) (Godlevskaya et al, 2011), 
and employ 70.00% (seventy percent) of total working population; with a tendency to 
grow, according to the Organization for Economic Co-operation and Development 
(OECD) (Kaczor and Kryvinska, 2013). We live in a service world (Vandermerwe and 
Rada, 1988; Dierdonck, 1992; Kindström and Kowalkowski, 2014; Durst et al, 2015). 
As expected, the servitization literature shows that this inclination towards services 
also reflects in the manufacturing sector (Kindström, 2010; Carbonell and Rodriguez-
Escudero, 2014; Kowalkowski et al, 2013; Durst et al, 2015; Elving et al, 2015; 
Beuren et al, 2013; Kohtamäki and Helo, 2015; Colen and Lambrecht, 2013; Chakkol 
et al, 2014; Alvarez et al, 2015; Barquet et al, 2013). “Service innovation is not the 
exclusive domain of service companies; (…) the significance is growing among both 
product and service firms” (BETTENCOURT and BROWN, 2013, p. 277). 
There are important reasons that may explain the movement towards services. 
Scholars highlight aspects, such as the product commoditization (Matthyssen and 
Vandenbempt, 2008/2010; Thomas et al, 2012; Raddats et al, 2015), the stagnation 
of product sales, and decline in product margins (Gebauer et al, 2016; Gesing et al, 
2014; Elfving et al, 2014; Kindström and Kowalkowski, 2009; Gremyr et al, 2010). In 
the past years, there has been an intense globalization (Boehm and Thomas, 2013; 
Gallego et al, 2013), a higher number of demanding customers (Neely, 2013; Paiola 
et al, 2013; Turunen and Finne, 2014), fierce competitive pressure and an increasing 
 
 
23 
use of Information and Communication Technology (ICT) (Boehm and Thomas, 
2013). Kaczor and Kryvinska (2013) go further and mention the global economic 
change, the trend to outsource and the change in business model, with more leasing 
and less ownership. These have forced manufacturers to look for new opportunities 
to be able to achieve differentiation in the market and maintain their competitiveness 
(Gebauer et al, 2016; Magnusson and Stratton, 2000). With that said, it becomes 
clear that with the demand for products becoming increasingly stagnated, focusing 
only on the production of goods is no longer attractive (Martín-Peña and Bigdeli, 
2016). “Manufacturers are realizing it is no longer enough to make products (…), they 
need to do more” (Korte, 2015). Therefore, the servitization process has turned into a 
natural process for manufacturers. The transition to a service-oriented business 
brings several positive outcomes to manufacturing firms, and “it is arguably becoming 
a promising business system that can satisfy both companies and customers with 
innovative ways of converging products and services” (HONG et al, 2015, p. 975). 
The literature explores this aspect in great depth and 04 (four) categories of 
benefits were identified and grouped: 
 Strategy - Competitive Advantage; 
 Market - Customer Relationship; and 
 Finances - Financial Advantages. 
 
a) Strategy - Competitive Advantage: 
The service strategy describes how the company differentiates itself from the 
competition, and is always backed by a vision (Gebauer et al, 2006). One of the most 
important roles of business strategy is to create competitive advantage for the firm 
(Gebauer, 2010; Demeter and Szász, 2013). By transforming the business model 
from product- to service-oriented, the manufacturer can create a more competitive 
environment towards the market. Adding bundled solutions to the clients can, 
therefore, serve as a differentiator (Hong et al, 2015). The competitive advantages 
are often more sustainable in services, because they are less visible and more labor-
dependent; for that matter, harder to imitate (Baines et al, 2009; Gebauer and Friedli, 
2005, Lockett et al, 2011). Services are 100.00%-dependent on people for its 
development and delivery, so the result is, indeed, much more complex than with 
products. The authors also state that servitization is an innovation process that leads 
to improved performance, since it provides companies with new business 
 
 
24 
opportunities (Hong et al, 2015; Raddats et al, 2016) and sets barriers for 
competitors’ market entry (Dachs et al, 2014; Weeks and Benade, 2015). In times of 
economic crisis, innovation is what drives a company´s success. 
 
b) Market - Customer Relationship: 
The adoption of a service-oriented mindset leverages customer value, customer 
collaboration and knowledge sharing between clients and the company (Viljakainen 
and Toivonen, 2016). The participation of customers in the servitization process is 
one of its main characteristics (Vendrell-Herrero et al, 2014), and back in 1988, 
Vandermerwe and Rada already identified the importance of customer relationship. 
As Neely (2013) said, manufacturers can create a whole new system of value, which 
help lock-in the relationship with customers and lock-out the competition. Services 
can minimize the risk of customers being wooed by competitors, since “knowing first 
that a customer wants something or has bought something is causing unprecedented 
channel warfare and reaction” (VANDERMERWE and RADA, 1988, p. 319). Also, 
servitization allows greater dependency and customer loyalty. “It is difficult to create 
dependency with product-intensive offerings; and the more ‘bundles’ are offered, the 
greater the chances of high dependency between customers and the company” 
(VANDERMERWE and RADA, 1988, p. 319). Services tend to create repeat-sale 
and, by intensifying contact opportunities with the consumer, it can put the firm in the 
position to offer new products and services (Baines, 2009; Gebauer et al, 2011; 
Johnstone et al, 2009; Lockett et al, 2011; Gallego et al, 2013). Companies gain 
insight into their customers’ needs and can develop more tailored solutions 
(Vandermerwe and Rada, 1988), giving the customer the right product, in the right 
place, at the right time and at a fair price (Raddats et al, 2016). 
Important to mention is that the servitization process improves the relationship 
with consumers, not only in the short term, but also in the long term (Johnstone et al, 
2009). Benedettini et al (2015) believe that the opportunities for value experience that 
services can create, through customization, bundling and better fit of customer 
needs, improves the relationship with consumers and their level of satisfaction. 
“Frequent contacts with customers give the chance to learn more about customer 
demands” (DACHS et al, 2014, p. 07). Carbonell and Rodriguez-Escudero (2014) 
state that customer´s involvement in the development of new services lead to more 
innovative ideas and firms develop insights in terms of customer´s preferences and 
 
 
25 
behaviors (Zhen, 2012); especially those that are unrecognized (Gesing et al, 2014; 
Maiwald et al, 2014). Moreover, customers seek greater value from the experience 
they get, rather than just the value of the physical product or service itself. The 
perceived value of the interaction with the firm´s employees and the treatment they 
receive counts more than what they buy (Plepys et al, 2015). “Customers do not look 
for goods or services per se; they look for solutions that serve their own value-
generating processes” (SCHUH et al, 2015, p. 335). 
Finally, the benefits of fully satisfied customers (Bettencourt and Brown, 2013; 
Beuren et al, 2013) are the improvement in the firm´s image,the reduction of 
marketing and transaction cost, an increased satisfaction of personnel, a strong 
switching barrier (Muffatto and Panizollo, 1995), more repeated purchases, referrals 
of other customers, and a positive word-of-mouth (Evans and Laskin, 1994). 
 
c) Finances - Financial advantages 
As said, product firms were losing market and financial share because of the 
commoditization of products and the lack of differentiation. With the introduction of 
services, however, the scenario has changed. Companies can create more 
personalized offerings to their customers and it leads to better financial outcomes. 
Many researchers have found a positive relationship between servitization and firm ´s 
financial performance (Lee et al, 2015), with commercial benefits and new 
opportunities for manufacturing firms (Martin-Peña and Bigdeli, 2016). Because 
customers are willing to pay higher fees (Zhen, 2012; Pourabdollahian and Copani, 
2015), the consequences are higher profit margin and stability/security of income 
(Gebauer et al, 2008; Johnstone et al, 2009; Gebauer, 2009/2010; Kucza and 
Gebauer, 2011; Gao et al, 2011; Lockett et al, 2011; Baines and Lightfoot, 2014; 
Martín-Peña and Bigdeli, 2016; Raddats et al, 2016). “(…) Services provide more 
constant income, higher profit margins, and require less asset allocation than 
manufacturing” (MARTÍN-PEÑA and BIGDELI, 2016, 18). 
The bundle offering of products and services can also increase product sales, and 
contribute to new solutions to clients and market share growth (Pawar et al, 2009; 
Demeter and Szász, 2013). Benedettini et al (2015) suggest that “services create a 
counter-cyclical, recession-resistant, high-margin revenue stream that reduces cash 
flow volatility, and improves performance” (BENEDETTINI et al, 2015, p. 950). Few 
authors even estimate that, in some manufacturing sectors – such as aerospace, 
 
 
26 
locomotives and automotive -, service revenues can be 01 (one) or 02 (two) orders of 
magnitude greater than the sale of products (Baines et al, 2009). Dachs et al (2014) 
believe that services can help “to increase capacity utilization, which in turn leads to 
increasing overall margins; to open up service markets with traditionally superior 
margins; and to avoid price competition in mature product markets” (DACHS et al, 
2014, p. 07). With higher customer proximity, it is possible to expand business 
opportunities and grow revenue streams (Baines, 2015); therefore, the higher the 
service orientation, the more profitable the company may be (Gebauer, 2009). 
 
With all benefits mentioned (Strategy, Market, and Finances), it gets easier to 
understand why companies are engaging in the servitization process. It is curious to 
note, though, that “traditionally, the tendency has been for managers to view services 
as a necessary evil in the context of marketing strategies (…). Recently, the value 
proposition often includes services as fundamental value-added activities and 
reduces the product to be just a part of the offering” (BAINES et al, 2009, p. 556). 
There has been a considerable shift in the mindset of managers, and they realized it 
is necessary to adapt their previous business model to a more up-to-date strategy. 
The differentiation is not merely adding services to tangibles, but “(…) manufacturers 
tend to view services as a means to differentiate their manufactured offerings” 
(BRAX, 2005, p. 144). 
The movement has been so drastic that some companies even decided to 
practically stop selling the product they previously depended on and changed to a 
complete service-oriented solution. One of the most notorious case studies is 
International Business Machines (IBM), the traditional hardware manufacturer, 
established in 1911, which shifted to a bundle of goods and services, with the 
inclusion of consulting, financing and training services. As a provider of business 
solutions, today 90.00% (ninety percent) of its revenues come from software, 
services and financing (Ahamed, et al, 2013). Other examples include companies like 
Alstrom, General Electric - GE, Rolls Royce, Fujitsu, John Deere, Siemens, Xerox, 
Apple, Volkswagen, Catterpillar, Johnson & Johnson - J&J, and Ericsson (Paiola et 
al, 2013; Gebauer et al, 2012; Elving et al, 2015). The numbers and statistics are an 
optimistic thermometer of this phenomenon. “By 2015, the share of worldwide 
manufacturers using performance-based service contracts will jump to 65.00%. By 
 
 
27 
that same future date, over 70.00% of manufacturers will be relying on services as a 
key product differentiator” (ELLIOT, 2014). 
Finally, it is unquestionable that the servitization process brings positive results to 
manufacturing companies; the benefits are immense. Services contribute to reducing 
cost, risk and uncertainty, saving time, increasing knowledge and improving image, 
social status and prestige of the company (Laperchea and Picard, 2013). 
However, the transition from product to services is not without obstacles and firms 
need to be aware of the challenges that might occur. 
 
2.3 The Service Paradox 
The servitization process does not happen from day to night. It takes both time 
and money (Matthyssen and Vandenbempt, 2010; Barnett et al, 2013; Azevedo and 
Sholiha, 2015). Dubruc et al (2014) affirm that the development of a service culture 
and the service awareness may take several years. “The transformation from offering 
and delivering a product to offering and delivering a service is difficult and slow” 
(BARNETT et al, 2013, p. 148). In addition, it requires substantial investment into the 
service business (Gebauer et al, 2016), higher labor costs and working capital (Lee 
et al, 2015). The relationship between servitization and financial performance is not 
that simple as many companies might predict; it is difficult to get the expected level of 
return from services (Neely, 2008). “The investment might not always pay off, leading 
to a situation where costs outperform expected service benefits” (GEBAUER et al, 
2016, p. 42). In the literature, this phenomenon is called the ‘Service Paradox’. 
The Service Paradox suggests that companies fail in the transitioning from 
products to services, which leads to unexpected low share of service revenue 
(Gebauer et al, 2005; Gebauer et al, 2010). “(Companies) are confronted with the 
situation, in which they invested in extending service business leading to increased 
service offering and higher costs but these investments do not generate the 
corresponding higher returns” (GEBAUER et al, 2005, p. 15; AIFANG et al, 2015, p. 
183; GEBAUER et al, 2016, p. 36). As Gebauer et al (2006) expose, manufacturers 
are confronted with the fact that the higher costs of services do not always 
correspond to higher returns in profit. 
Figure 02 shows the service paradox schema, through the difference between 
manufacturing companies that successfully exploit the financial potential of the 
 
 
28 
service business versus manufacturing companies struggling to exploit the financial 
potential of it. 
 
Figure 02 - Transition from product manufacturer to service provider 
(Gebauer and Friedli, 2005, p. 71) 
 
As Figure 02 exposes, on the one hand, a successful transition process results in 
a service provider that offers products as an add-on to services and the major share 
of company´s value creation stems from its services. On the other hand, the 
unsuccessful transition process results in many services and increased costs, but low 
corresponding value creation through services. 
Unfortunately, the phenomenon happens with more frequency than would be 
expected (Demeter and Szász, 2013), and companies end up investing huge amount 
of resources into providing services, but do not achieve the expected outcome. 
“Critical mass of service sales is not reached, services are not related to 
manufacturer’score business, and available service resources are very few” (FINNE 
et al, 2013, p. 520). Bain & Company performed a study, which shows that only 
21.00% (twenty-one percent) of companies succeed with service strategies (Ulaga 
and Reinartz, 2011; Parida et al, 2014; Benedettini et al, 2015). Most of them fail 
during the process, and some even declare bankruptcy. 
The reasons for the paradox are various. As Gebauer et al (2016) state, the most 
important one is that firms underestimate the complexity of the service business. 
 
 
29 
Neely (2008) believes that there are 03 (three) main reasons why companies fail in 
the transformation process: the challenges of shifting mindsets (in marketing, sales 
and customers), timescale, and business models. Lee et al (2015) and Finne et al 
(2013) note that the delivery of services not always guarantees profitable results 
because of the management environment. Moreover, establishing supplier-buyer 
relationship shows different patterns due to higher complexity than the traditional 
supply chain (Lee et al, 2015). Benedettini et al (2015) explain that the main issue 
with manufacturers is regarding the risk they are exposed to, as “(…) manufacturing 
firm enters new fields of services, it likely changes both the levels and types of risks 
to which it is exposed” (BENEDETTINI et al, 2015, p. 947). The risks herein 
mentioned are not only internal to the company, but also environmental-related, as 
the servitization process exposes the firm to a wider sequence of regulatory, legal, 
economic and/or technological issues. The literature focuses mostly on the internal 
aspects of manufacturers, but it is equally important to consider the organizational 
environment in determining the success of servitization strategies (Finne et al, 2013). 
For pharmaceutical companies, such as company ‘ABC’, the issues related to 
regulation play a major role and may affect the entire strategy of a manufacturer; 
therefore, it is highly important to take all the in- and extrinsic aspects of a change in 
culture into consideration. 
Including services in the company´s offering may be complex. Unlike products, 
services demand much more attention from the front-office employees, and can be 
very unpredictable. The service paradox is a warning that, if manufacturers do not 
employ effort in the transition process from products to services, the entire strategy 
may collapse, and the consequences may be drastic for firms (Neely, 2008). 
To avoid the service paradox, and to create a smooth transition from product- to 
service-oriented organizations, it is fundamental to understand the steps of the 
servitization process, called the service continuum, and the critical success factors 
that determine whether the transition will be successful or not. Biege et al (2012) 
affirm that it is much easier to add services to service companies than to develop 
services in manufacturing companies; therefore, it is crucial to understand the shift 
from product to services in the firm. 
 
 
 
30 
2.4 The service continuum 
The servitization process may be conducted in several ways. Normally, 
organizations adopt the strategy in a gradual way, from the offer of basic services to 
more advanced and value-added services, as they gain more experience (Parida et 
al, 2014). Oliva and Kallenberg (2003) created a framework, called the ‘Service 
Continuum’, to define the proportion of products and services offered by the 
manufacturing company. As Martin-Peña and Bigdeli (2016) state, there is a range of 
options with two extremes that define where the company is positioned, regarding the 
product-service offering. 
“At one extreme lies the traditional manufacturer who only offers goods, 
while services are complements or add-ons for their products; (…) profit is 
generated principally through the products that are sold and the contribution 
of services is reasonably low. At the other extreme are the service providers, 
where services represent the basis of the value creation process and 
tangible goods are added to satisfy customer needs; these goods represent 
just a small part of the total value”. 
(MARTÍN-PEÑA and BIGDELI, 2016, p. 22) 
 
Considering both extremes, enterprises position themselves, within the range, in 
accordance to their organizational reality, needs and limitations/restrictions, at a 
specific period. It is of extreme importance to highlight that, in most cases, 
companies face various challenges by adding services to their product offerings, and 
it becomes a matter of adapting and adjusting the strategy with the internal and 
external capabilities of the organization. “An organizational capability is a firm’s 
capacity to deploy resources for a desired result” (ULAGA and REINARTZ, 2011, p. 
06). In some situations, the manufacturer may have little choice between service and 
goods orientation, since it is pushed into a specific direction by the organizational 
environment, which can be both internal or external (Finne et al, 2013). There may 
be regulatory, legal, economic and/or technological issues that hinder the 
servitization path, and decreases the company´s ability to offer more (or less) 
services. The results, as expected, are extremely variable. 
As a matter of better illustrating the service continuum, the authors Oliva and 
Kallenberg (2003) have developed a framework, as shown in Figure 03. 
 
 
31 
 
Figure 03 - Service Continuum 
(Oliva and Kallenberg, 2003, p. 162) 
 
In the left side of Figure 03, the products (tangible goods) play a major role in the 
company, and services are ‘add-ons’; whereas on the right side, services represent 
the main offering, and products (tangible goods) are ‘add-ons’. Within the range, 
there are numerous possibilities that companies may pursue, according to their own 
capacity and needs. With Figure 03, it is possible to visualize where the company is 
positioned today (Current position - ‘What do you offer today?’) and what the target 
position may be (Target position - ‘Why don´t you want to go even further?’). 
According to the framework, and by taking a look at the black arrows in the middle, 
companies should pursue higher positions in the service continuum, which means 
that they should aim for more service offerings. Of course, this is only illustrative, and 
companies should focus on their own needs, capabilities and limitations, and not try 
to reach higher goals if the organization is not ready/capable to do so. 
Oliva and Kallenberg (2003) have developed a second framework to better detail 
the servitization process, as Figure 04 shows. This framework demonstrates the 
connection between 04 (four) phases that manufacturers go through, according to 
the authors: 1. Consolidation phase, 2. Entering the service market, 3. Expanding 
relationship- and process-based services, and 4. End-consumer phase: 
 
 
32 
 
Figure 04 - Basic Business Model for servitized companies 
(Oliva and Kallenberg, 2003, p. 165) 
 
Brax (2005) has made a clear explanation of Figure 04, with more details on each 
of the phases. 
“First, companies consolidate their product-related services and often 
relocate services in a newly created service unit. Second, they enter the 
installed base service market through defining and analyzing this market, 
creating an infrastructure for marketing and delivering services and 
responding to local service demand. Third, companies can expand to 
relationship-based services or they can focus on process-centered services. 
Finally, the final stage refers to taking over the end-user´s operations”. 
 (BRAX, 2005, p. 146) 
 
This framework gives a high-level example of how companies can go through the 
servitization process, beginning with a pure manufacturer strategy until taking over 
the customer´s operations. Again, each company has its own reality, needs and 
limitations, which may alterthe way they engage in such a complex process. 
It is important to mention that not only Oliva and Kallenberg have dedicated time 
and effort to study the phases of the servitization process; rather several other 
scholars have developed different frameworks and nomenclatures to explain the 
service continuum by which manufacturers go through. Although distinct, the main 
idea is very similar. 
Kotler (apud BRAX, 2005, p. 143) states that there are 05 (five) types of service 
mix: (1) pure tangible goods, (2) tangible good with accompanying service, (3) hybrid, 
(4) major service with accompanying minor goods, and (5) pure services. The hybrid 
offering is defined as a “combination of one or more goods and one or more services, 
creating more customer benefits than if the good and service were available 
separately” (ULAGA and REINARTZ, 2011, p. 05). Martin and Horne (apud BRAX, 
 
 
33 
2005, p. 146) believe there are only 04 (four) possible combinations: (1) goods only, 
(2) goods and services – good dominant, (3) service and goods – service dominant, 
and (4) services only. As Tukker (apud SMITH et al, 2014, p. 245) says, there are 03 
(three) distinct phases: (1) product-oriented, (2) use-oriented, and (3) result-oriented. 
At the one end, there is the pure product company; at the other end, the pure service. 
Figure 05 is a chart, with more details of a product-service system, according to 
Tukker´s (apud SMITH et al, 2014, p. 245) theory: 
 
Figure 05 - Product-service system 
(Tukker, apud Smith et al, 2014, p. 245) 
 
Laperchea and Picard (2013) explain Figure 05: 
“The product-oriented services mean services are just added to an existing 
product system to guarantee the functionality and durability of the product 
owned by a customer. The use-oriented services mean services intensify the 
use of the products. The use or the availability of the product is sold but the 
product is not owned by the customer (product renting, leasing, sharing, 
pooling). Finally, the result-oriented services mean a result or a capability is 
sold instead of a product. One actor becomes responsible for all costs of 
delivering a result and hence has a great incentive to use materials and 
energy optimally”. 
(LAPERCHEA and PICARD, 2013, p. 121) 
 
Based on Tukker´s (apud PARIDA et al, 2014, pg. 44) theory, Parida et al (2014) 
state that the categorization can be divided into 04 (four) types: (1) add-on customer 
service/basic services (product-oriented), (2) maintenance and product support 
services (product-oriented), (3) R&D-oriented services (use-oriented) and (4) 
functional/operational services (result-oriented). Drodegari et al (2015) adapted 
Tukker´s (apud DRODEGARI et al, 2015, p. 248) definition and created a new 
typology with 05 (five) items, ranging from ownership- to service-oriented: (1) 
 
 
34 
product-focused, (2) product and processes-focused, (3) access-focused, (4) use-
focused, and (5) outcome-focused. 
It is worth mentioning that the addition of services to the offered product may 
entail different kinds of service offerings, which include customer service, after-sales 
services, operational services, customer support services, services for the installed 
base, advanced services, and R&D-oriented services (Gebauer et al, 2016). “A 
movement has advanced beyond offering simple add-on services, such as technical 
user training or product demonstrations, to more complex, high-value-added 
services, such as product optimization or maintenance” (PARIDA et al, 2014, p. 44). 
Neely (2008) defines 12 (twelve) types of services that manufacturing firms can offer: 
design and development; systems and solutions; retail and distribution; maintenance 
and support; installation and implementation; financial services; property and real 
estate; consulting; outsourcing and operating; procurement services; leasing; and 
transportation and trucking. 
A R. Tan el at (2010) created a span to distinguish different types of service 
offerings, ranging from a product-oriented to a customer-oriented approach, as 
shown in Figure 06: 
 
Figure 06 - Span of service oriented development methods 
(A R Tan et al, 2010, p. 94) 
 
Figure 06 highlights the different design and development approaches existing in 
the literature, focused on the integration of both products and services. Services, like 
maintenance and repair, are more product-oriented, whereas consulting and 
financing are more customer-oriented. In the scale of servitization, the more service-
 
 
35 
oriented the company is, the readier it is to servitize; on the other hand, the more 
product-oriented, the less ready it is to servitize. 
It is worth mentioning that the transformation from product-oriented to customer-
oriented is fluid. The service continuum, consequently, is also not static. As the name 
suggests, companies may (and should) change their position in the Figure – whether 
in the service continuum (Figure 03) or the span of services (Figure 06) – in 
accordance to theirs current organizational situation. The service continuum is, 
therefore, extremely dynamic and should serve as a guide for companies when 
defining their product-service combination. As already stated, however, 
environmental aspects may prevent the company from advancing to more customer-
oriented stages, and manufacturers may have little choice between service and 
goods orientation. It is, therefore, important to be aware of the critical success 
factors, which may help companies in improving their service offerings, while creating 
a more sustainable and concrete service strategy for them. 
 
2.5 Critical Success Factors for Servitization 
Despite all benefits that arise from the change in product-oriented to service-
oriented mindset, there are several challenges that companies need to overcome, as 
already exposed in 2.3 The Service Paradox. The engrained manufacturing-oriented 
way of doing business and the difficulties of finding the right combination of products 
and services (Nuutinen and Lappalainen, 2012) make the change efforts fail in the 
very beginning (Gudergan et al, 2015). Servitization does not come from day to night 
and the list of manufacturing companies that engage in successful service strategies 
is not as long as one might expect (Oliva and Kallenberg, 2003). In fact, few are the 
ones that succeed. 
By analyzing the literature available, it gets clear that products and services are 
different in many ways. On the one hand, products are tangible, separable, 
homogeneous and storable. Consequently, product-based manufacturing has proved 
to be easy to have their products imitated by the competition (Martinez et al, 2010). 
“Products are simply more obvious than services” (GEBAUER et al, 2005, p. 16). On 
the other hand, people cannot touch, smell, see or store services. Services have the 
‘IHIP characteristics’ – intangibility, heterogeneity, inseparability and perishability (De 
Toni et al, 1994; Pawar et al, 2009; Spring and Araujo, 2009; Gao et al, 2011; Zhang 
 
 
36 
and Zhang, 2014). Because the production and consumption happen simultaneously, 
unlike goods, services have inseparable outcomes, which means that the results are 
never the same; it has practically no standardization in its performance (Dierdonck, 
1992). As Kaczor and Kryvinska (2013) affirm, the lack of standardization happens 
mainly due to 04 (four) reasons: customer perceptions, costs, geographical 
characteristics and service providers. By customer perception, Dierdonck (1992) 
highlights elements that influence the way customer´s view services: the general 
image of the service / sector / organization; the general image of the personnel; and 
the physical location, environment and working atmosphere. 
Narvaiza et al (2016) state that different from products, where the exchange is 
merely transactional - “I sell you a product, you pay me;end of relationship” - in 
services, there is a deeper interaction between seller and buyer - “I provide you a 
service, we start a relationship, we keep in touch” (NARVAIZA et al, 2016, p. 132). 
As one can realize, services are much more complex and fuzzy than goods (Baines 
et al, 2009), and for that matter, it has, until today, no clear definition, classification 
and terminology in the literature (Kaczor and Kryvinska, 2013). As mentioned and 
due to the major differences in products and services, companies face enormous 
challenges in the transition to a product-service firm (Baines et al, 2009). Companies 
cannot simply add services on top of the original goods-dominant offering; a more 
radical approach is necessary (Brax, 2005; Weeks and Benade, 2015). Baines et al 
(2009) state that manufacturing companies that decide on a service strategy have to 
adapt the necessary organizational structure and processes, as well as redesign their 
business model (Martin-Peña and Bigdeli, 2016). Business models can tell the story 
of the company (Kindström and Kowalkowski, 2014; Shirahada et al, 2015) and 
encompass all relevant areas of the organization - key partners, activities and 
resources; value proposition; customer segments and relationship; channels; cost 
structure and revenue stream. The process implies not only the development of a 
service offering, but an entire organizational transformation (Baines, 2015; Ahamed 
et al, 2013; Martinez et al, 2010). According to the definition by Leoni (2015) in Table 
01, “it means transforming almost every aspect of the way business is conducted: 
such as strategies, positions in the value stream, capabilities, organizational 
structures, as well as culture and mindsets at all organizational workers’ level” 
(LEONI, 2015, p. 612). The shift to a service-oriented firm is not easy; thus, 
 
 
37 
organizations are likely to change their strategy, organization, enterprise 
management, contracting, culture, and operations (Barnett et al, 2013). 
First, Kinnunen and Turunen (2012) believe that defining the service strategy is 
the initial step to servitization. “Service strategy should be considered the foundation 
for companies seeking to successfully operate in the service business” (KINNUNEN 
and TURUNNEN, 2012, p. 61). To function properly, there should be an alignment 
between the organization and the strategy itself; and it should be constantly modified 
to fit the competitive environment. It is crucial to understand client´s needs, market 
potential and future trends. Therefore, having a market-oriented process allows the 
firm to create more customized solutions (Gebauer et al, 2005), making companies 
more competitive, by defining new business solutions. 
Second, but not least important, is the adaptation of the organizational culture, to 
incorporate all changes needed to support the service strategy. “Organizational 
culture is a system of shared actions, values and beliefs that develops within an 
organization and guides the behavior of its members” (AHAMED et al, 2013, p. 23). It 
relates to “(…) social established structures of meaning” (LIENERT, 2015, p. 354); 
and “it is a distinctive way of thinking and working together that defines the group´s 
norms, values and assumptions” (CARLETON et al, 2015, p. 09). For companies to 
succeed in the transformation process, they should create a strong service culture 
(Gebauer et al, 2005; Gebauer et al, 2010; Paiola et al, 2013). According to 
Kokemmuller (2016), a service culture exists when employees have a customer-
centric approach to their regular activities. They put customer needs at first place and 
focus on providing a good experience, contributing to the development of a long-term 
relationship. Ahamed et al (2013) details that IBM, in order to succeed, focused first 
on the development of a service strategy and culture. By developing such a service 
orientation, they had to position the customer in the spotlight of their business model 
and not put all their effort in the delivery of a product. The result was that the 
company could better understand client´s needs and provide what best suited them, 
with quality and profit. 
Therefore, a shift in mindset, towards a more customer- and service-oriented 
approach, is necessary to take on services (Nuutinen and Lappalainen, 2012; Dubruc 
et al, 2014). Pezzotta et al (2014) state that it is important to shift the culture from a 
transactional-based approach to a long-term strategy (Rajesh and Tore, 2007). 
“Service-oriented culture in manufacturing companies contains the values and 
 
 
38 
behaviors associated with an entrepreneurial orientation, real problem-solving 
eagerness, innovativeness, and flexibility of service employees” (GEBAUER et al, 
2010, p. 239). Additionally, it reflects specific roles for front-office employees, such as 
serving as a trusted adviser, developing a strong relationship with customers, leading 
a collaborative support performance, and delivering complex services (Gebauer, 
2008). 
However, with the implementation of a service-oriented culture and strategy, 
managers should overcome different obstacles, especially those related to the 
behavior of employees (Gebauer et al, 2006). Dubruc et al (2014) believe that culture 
is an abstraction, yet the forces that are generated in both social and organizational 
environments are powerful, as it can affect the way members think, feel and behave. 
One of the main difficulties is that part of the culture is hidden; although culture may 
change all the time, the basic beliefs are not questioned (Nuutinen and Lappalainen, 
2012) and the assumptions are unexamined and taken for granted (Lienert, 2015). In 
addition, culture provides employees with the necessary tools to solve problems and 
navigate the organizational environment (Lienert, 2015). With the change in culture, 
though, managers are likely to meet resistance from within the organization, where 
people do not understand the new strategy, or worse, where people fear an 
infrastructural change (Baines et al, 2009). People, in general, tend to avoid 
changing how things work, simply because it is emotionally effort-full. “Transforming 
the organization’s culture constitutes one of the most fundamental challenges 
confronting an institution, as people’s natural inclination is to hold on to whatever 
feels familiar, even if confronted with better alternatives” (AHAMED et al, 2013, p. 
23). 
For that matter, creating the right strategic and cultural context involves telling a 
clear and compelling story that persuades people of the value of services. “Winning 
hearts and minds involves building a service mindset that ensures that people 
understand that value in the service context is ‘co-created’ in partnership with 
customers; that the role of leadership should be supportive and enabling; and that 
services depend on customer intimacy achieved through a combination of data, 
knowledge and deep relationships” (MARTINEZ et al, 2016, p. 07). 
To clarify how to overcome such challenges, this chapter intends to highlight the 
critical success factors for manufacturing companies, so that they can include 
services into their offerings, whether in higher or lower degree – according to the 
 
 
39 
service continuum in Figure 03. As Martinez et al (2016) state, “critical success 
factors for any business are defined as the limited number of areas in which results, if 
they are satisfactory, will ensure successful competitive performance for the 
organization” (MARTINEZ et al, 2016, p. 04). First, through an extensive literature 
review, it was possible to identify the critical success factors that scholars understand 
are important for the shift to services. Second, those with similar characteristics were 
grouped to have 04 (four) success factors that are crucial for manufacturing 
companies. They are: